It is important to invite international companies to invest in the Asean Economic Community (AEC), which started on January 1, 2016. Asean has achieved worldwide recognition for being one of the most dynamic and integrated regions. The growing purchasing power of the 600 million consumer market and the ongoing progress of the regional community offer an integrated market and production base for both business and consumers.
Foreign direct investment (FDI) is a key component of resource flows to Asean countries. Over the last decade, FDI flows into Asean members grew at an annual average rate of 19 percent.
Within the overall framework, each Asean country has adopted its own strategy to attract FDI. As in the European Union, efforts to create a “level playing field” between the countries in the single market leaves national governments with freedom to provide their own tax and other incentives to investors.
While the Philippines is still debating whether fiscal incentives should be offered to investors and to what extent the economy should be opened to foreign investors, Indonesia, Thailand and Vietnam are taking a much more aggressive approach in courting investors into their markets.
Thailand has become the ninth-biggest car producer in the world:
China 22.1 million manufactured cars in 2013
USA 11.0
Japan 9.6
Germany 5.7
South Korea 4.5
India 3.9
Brazil 3.7
Mexico 3.1
Thailand 2.5
Source: OICA
The daughter company of Audi, Ducati, is building more motorbikes in Thailand than in Bologna. Only in 2012, Ducati started with a capacity of 8,000 units in Thailand; now they have started an expansion to 35,000 units per annum.
These examples of successful investment in manufacturing show that Asean is getting ready and the Philippines has to make up its mind whether it wants this kind of investment and, if yes, with what kind of incentives. Given the talks in the Philippines on federalism, decentralization and regionalization, it is also necessary to come up with ideas where investments should be located, what kind of incentives will be made available and what kind of infrastructure will be provided.
Other areas in which manufacturing investments are planned in the region are aerospace, machinery and components, life sciences and mobile technologies. It has to be understood that there is competition within Asean, but China is also watching the “next wave” of manufacturing to allow continuous growth. Again, for the Philippines, the government has to look at the role it wants to play in driving this kind of FDI targeted at “inclusive growth” and has to adjust its economic policies. This is certainly not the time to cut back on investment incentives!
Important for all Asean countries is the development of skilled labor. In this context, it is essential that universities, companies and the government work together, not only in the development of engineers and scientists but also in technicians and skilled workers, through apprenticeship and dual technical education. The “shopfloor R+D” that Department of Science and Technology and the European Chamber of Commerce of the Philippines in Cebu developed should be part of this process, to promote the classroom studies into applied practical use.